Case Summary (G.R. No. 125704)
Parties
Petitioner: Philex Mining Corporation
Respondent: Commissioner of Internal Revenue, with the Court of Tax Appeals (CTA) and the Court of Appeals (CA) as intervening forums
Key Dates
• 2nd Q 1991–2nd Q 1992: Period covered by BIR’s excise tax assessment
• August 5, 1992: BIR demand letter for P123,821,982.52
• August 20, 1992: Philex’s protest and assertion of P119,977,037.02 VAT credit/refund claims
• March 16, 1995: CTA decision ordering payment of P110,677,668.52 plus 20% interest
• April 8, 1996: CA affirmation of CTA decision
• July 1996: Issuance of tax credit certificates totaling over P205 million for VAT inputs
• August 28, 1998: Supreme Court decision
Applicable Law
• 1987 Philippine Constitution (decision post-1990)
• National Internal Revenue Code of 1977, as amended (Sections 248–249 on surcharge/interest; Section 106(e) on refund timeliness)
• National Internal Revenue Code of 1997 (Section 112(D) on refund/credit period)
• Civil Code of the Philippines (Article 27 on official neglect)
• Leading jurisprudence: Francia v. IAC (162 SCRA 753), Caltex Phils. v. Commission on Audit (208 SCRA 726), Commissioner v. Itogon-Suyoc (28 SCRA 867)
Factual Background
The BIR computed Philex’s excise tax liability at P123,821,982.52, inclusive of basic tax, 25% surcharge and interest, for five consecutive quarters. Philex protested, invoking pending VAT input credit/refund claims (1989–1991) amounting to P119,977,037.02. The BIR denied compensation on grounds that Philex’s refund claims were unliquidated and non‐demandable. Subsequently, a Tax Credit Certificate of P13,144,313.88 was issued, reducing the outstanding liability to P110,677,668.52.
Procedural History
1. Philex elevated the BIR’s denial to the CTA (CTA Case No. 4872).
2. On March 16, 1995, the CTA denied Philex’s compensation plea and ordered payment of P110,677,668.52 plus 20% annual interest from August 6, 1994, under Sections 248–249, Tax Code of 1977.
3. Philex appealed to the CA (CA‐G.R. CV 36975); on April 8, 1996, the CA affirmed the CTA.
4. Philex’s motion for reconsideration before the CA was denied on July 11, 1996.
5. In July 1996, the BIR granted Philex over P205 million in VAT input tax credits/refunds for periods including 1989–1994.
6. Philex then argued automatic offset against its excise tax liability and filed a petition for certiorari before the Supreme Court.
Issue on Compensation of Taxes
Whether a taxpayer’s VAT input tax credit or refund claim—pending or finally granted—may be legally set off against an outstanding excise tax liability, thereby dispensing with surcharge and interest.
Supreme Court’s Analysis on Compensation
1. Taxes and debts are distinct: debts are corporate‐capacity obligations; taxes are sovereign‐capacity demands.
2. Jurisprudence uniformly bars compensation of taxes, as the government and taxpayer are not mutual debtor‐creditor parties (Francia; Caltex).
3. Itogon-Suyoc’s allowance of provisional set-off under Section 51(d), NR Code of 1939, lost force with its omission in the 1977 Code.
4. Philex’s VAT claims—though later liquidated—do not authorize automatic or legal compensation against excise taxes.
5. The compulsory nature of taxation mandates collection without regard to unrelated or pending taxpayer claims.
Issue on Surcharge and Interest
Philex contended surcharge and interest under Sections 248–249 were unjustified given its pending VAT claims. The Court held that failure to timely pay excise taxes, irrespective of pending refund applications, validly incurs surcharge and interest; neither pr
Case Syllabus (G.R. No. 125704)
Case Title and Composition
- G.R. No. 125704, Third Division of the Supreme Court of the Philippines
- Decision promulgated on August 28, 1998
- Ponente Justice Romero; concurred in by Chief Justice Narvasa (Chairman), Justice Kapunan, and Justice Purisima
Procedural History
- BIR demand dated August 5, 1992 for excise tax liabilities covering 2nd–4th quarters of 1991 and 1st–2nd quarters of 1992, in the total amount of ₱123,821,982.52
- Philex’s protest letter dated August 20, 1992, claiming pending VAT input credit/refund of ₱119,977,037.02 plus interest
- BIR denial dated September 7, 1992, on grounds that pending claims were unliquidated and thus not compensable
- Petition filed with the Court of Tax Appeals (CTA) on November 6, 1992, docketed as CTA Case No. 4872
- CTA decision dated March 16, 1995 ordering payment of ₱110,677,668.52 (after a ₱13,144,313.88 tax credit certificate) plus 20% annual interest from August 6, 1994
- Appeal to the Court of Appeals (CA), docketed as CA-G.R. CV No. 36975; CA decision promulgated April 8, 1996, affirming the CTA decision
- Motion for reconsideration denied by the CA on July 11, 1996
- Final appeal to the Supreme Court
Facts of the Case
- BIR compute of excise tax liability (basic tax, 25% surcharge, interest):
• 2nd Qtr. 1991 – ₱19,517,021.91
• 3rd Qtr. 1991 – ₱21,721,845.60
• 4th Qtr. 1991 – ₱26,889,937.88
• 1st Qtr. 1992 – ₱30,887,982.25
• 2nd Qtr. 1992 – ₱24,805,194.88 - Total excise tax due: ₱123,821,982.52
- Philex’s VAT input credit/refund claims for 1989–1991 (₱119,977,037.02 plus interest) pending before the CTA in Case No. 4707
- BIR issued Tax Credit Certificate SN 001795 for ₱13,144,313.88 during CTA proceedings, reducing payable liability to ₱110,677,668.52
- Subsequent VAT input credit/refund certificates issued in July 1996 for pe